Due to the impact of US tariffs and the lingering effects of global trade tensions, the New Zealand economy is under continuous pressure. The Reserve Bank of New Zealand (RBNZ) is expected to announce its sixth consecutive cut to the official cash rate (OCR) this Wednesday, potentially indicating further scope for monetary policy easing.
According to a survey of 23 economists, 22 expect the central bank to lower the OCR by 25 basis points to 3.25% on May 29 (local time), while only one anticipates a 50 basis point cut. Most market participants believe that the Monetary Policy Committee will signal another rate cut this year, pushing the OCR below 3%, through updated interest rate path forecasts.
Kelly Eckhold, Chief Economist at Westpac in Auckland, analyzes: “We expect the RBNZ to lower the OCR forecast for the end of 2025 to around 2.9%. However, the central bank will maintain a 'data-driven' approach to flexibly respond to economic developments.”
The New Zealand central bank has previously stated that the uncertainty of US trade policy poses a downside risk to the nation's economic activity and inflation, providing more room for monetary easing. Although tensions between China and the US have slightly eased recently, risks remain, hindering recovery momentum.
The RBNZ will announce its policy decision at 2 PM on Wednesday, followed by a press conference at 3 PM with Governor Christian Hawkesby. The central bank will also release its latest economic and inflation forecasts, assessing the impact of global trade shocks on domestic growth.
ASB Bank economist Wesley Tanuvasa points out: “While tariff conflicts have slightly cooled, we believe that in the medium term, New Zealand will still be negatively affected by the trade war. The central bank is likely to maintain cautious wording, emphasizing that the future policy path depends on data and developments.”
Regarding economic performance, recent New Zealand data presents mixed signals. The unemployment rate remained steady at 5.1% in the first quarter, better than market expectations; commodity prices are robust, and inflation expectations are rising. The central bank anticipates current inflation at 2.2%, rising temporarily to the upper bound of its 1-3% target range before slowing again in 2025.
However, the real estate market remains sluggish, business confidence is declining, and a recently announced tight fiscal budget is seen as paving the way for further rate cuts. The Treasury stated that this budget will effectively alleviate inflationary pressures, providing room for monetary policy adjustments.
Regarding the scale of expected rate cuts, some economists predict that the RBNZ will eventually lower the OCR to 2.5%, while mainstream market expectations lean towards 2.75%. ANZ Chief Economist Sharon Zollner says: “While we think the OCR will ultimately fall to 2.5%, we do not believe the central bank will give such a clear signal at this stage.”
Amidst the high uncertainty of global financial policy, the New Zealand central bank is seeking to maintain strategic flexibility to make timely responses based on future economic trends.
